IR35 Changes April 2021 – Are you prepared?

Guidance for businesses & contractors

Changes to the UK’s IR35 legislation come into force on 6 April 2021 and yet still many businesses and contractors are unprepared for the off payroll working rules. It’s now becoming more urgent that both businesses and contractors understand how they will be impacted by the change in legislation.

A recent survey by EY show that nearly three quarters (72%) of affected self-employed individuals have not yet prepared for the IR35 changes.

The changes mean that businesses will determine the employment status of contractors working through the company. The new rules apply to public sector and medium to large organisations. Many contractors fear that many companies won’t have prepared or have a strong grasp of the new rules to make well-informed decisions.

How contractors should prepare

• Take control – if your client or agency haven’t been in touch, then contact them and discuss their plans for the changes.
• Talk to other contractors – if you know of other contractors working for the same client then speak to them to find out if they have discussed the changes with the client.
• Get written confirmation – find out if you could secure a Confirmation of Arrangements (CoA) document with the client. Confirming that all parties (including recruitment agencies) agree with your IR35 status.
• The right to substitute – ensure your contract allows for a substitute in the contract as this may well allow you to have a strong case for belonging outside IR35.
• Seek advice – it may be worth getting your contract reviewed by an IR35 specialist to give you expert independent advice.
• Negotiate pay rate – if you have been assessed as inside off-payroll negotiate your pay with the end client, with special consideration to who bears the employment costs. Use our off-payroll comparison calculator to check how much pay rise you should ask for.
• structure: you will need to decide whether to contract through an employment umbrella, agency PAYE or continue with your PSC. We have written a detailed article on this subject.

How businesses should prepare

• Conduct an audit of your contractors – audit who works for different parts of the business, the work they do and how important their work is to your business.
• Determine which contractors fall ‘inside’ or ‘outside’ the rules – Assess contractors on a case-by-case basis. Don’t apply ‘blanket’ rules as this may have repercussions further down the line. Use the Governments Check Employment Status for Tax (CEST) tool to help you or engage an employment law specialist.
• Communicate your findings with your contractors – keep in touch with contractors, have an open conversation about your decision on their status, reassure them and understand the impact on them and the questions they may have.
• Have a clear agreement in place – new contractors you use from April will need a new policy, which should include their employment status.
• Prepare for higher costs – Many contractors may put up their prices to compensate for the tax implications, so prepare and plan for this increase.
• Put those that are ‘inside’ the rules onto your HR & payroll system – You’ll need to put those contractors that are ‘inside’ the rules onto your payroll system. If they operate through an agency, then it’s the agency’s responsibility to deduct tax and inform HMRC.

Although HMRC has confirmed ‘light touch’ to penalties for the first 12 months, it will be important for businesses to demonstrate that they have made efforts to comply with the legislation or face the risk of penalties.

With the pandemic taking centre stage in many people’s minds in the past year, the IR35 changes may well have been missed or pushed further down the ‘To Do’ list. But, as these reforms are now imminent, it’s crucialfor both contractors and companies that may be affected by this change of legislation to get everything in order and communicate with one another so there are no nasty surprises further down the line.

We recently conducted a webinar on the off-payroll changes and how businesses and contractors should prepare for them. The recording can be found here.

If you need more advice about April’s IR35 changes, then contact us.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.